Analysis of Payments Policy and Regulatory Framework in Pakistan

Pakistan's payments policy and regulatory framework has undergone significant changes in recent years to promote financial inclusion, digital transformation and alignment with international standards. The following is a systematic analysis of the regulatory bodies, policy framework, key regulations and industry trends:

I. Core regulators

  1. State Bank of Pakistan (SBP)

    • Central Bank Functions: Responsible for the regulation of the payment system, the implementation of monetary policy and the licensing of financial institutions.
    • Key Initiative: Launch of the National Payment System Strategy (NPSS) targeting 80% adult bank account penetration by 2025.

  2. Securities and Exchange Commission of Pakistan (SECP)

    • Jurisdiction: non-bank fintech companies (e.g. P2P lending platforms), securities-related payment services.

  3. Federal Board of Revenue (FBR)

    • Tax compliance: monitoring tax filings for electronic payments, e.g., 191 TP3T sales tax on digital transactions (partial exemption).

II. Key policies and regulations

  1. Electronic Money Institutions Regulations (EMIs, 2019)

    • NBFCs are allowed to issue e-wallets subject to minimum capital requirements (Rs 200 million ≈ $700,000).
    • Typical companies: JazzCash (owned by telecom operators), EasyPaisa.

  2. Instant Payment System (Raast)

    • SBP-led free real-time clearing system to go live in 2021 with an average daily processing capacity of over 1 million transactions.

  3. AML/CFT legislation

    • The AML Act 2010 requires payment platforms to implement KYC:
      • Tiered Accounts: Basic accounts require only mobile number verification (limit Rs. 50,000/month).
      • Biometric ID authentication is required for full-featured accounts.

  4. Cross-border payment restrictions

    • SBP caps individual foreign exchange transfers at $100,000 per year; e-commerce import payments to be declared in advance.

III. Market dynamics and challenges

  • Growth data: 45 million mobile wallet users (20% of the population), but cash still accounts for 17% of GDP.
  • challenge::
    • Insufficient interoperability: Transfers between different e-wallets still need to go through a bank gateway.
  • Innovation Pilot::
    • SBP approves first blockchain cross-border remittance project (2023 UAE-Pakistan corridor).

IV. Implications for Chinese enterprises

  1. joint venture modelForeign shareholding is capped at 60% and it is recommended to join forces with a local partner (e.g. UBL Bank or Telenor).
    2.Compliance Focus
    Ensure localised storage of data (SBP requires at least in-country backups).

If there is a need to go deeper into a particular area (e.g. progress on the digital currency pilot), this can be explored further.

Okay, let's move on to delve into other key dimensions of Pakistan's payments ecosystem, including emerging trends, segmentation opportunities, and hands-on level compliance advice:

V. Analysis of market segmentation opportunities

1. E-commerce Payment Solutions

  • market size: Pakistan's e-commerce is growing at an annual rate of 351 TP3T ($6bn by 2023), but the COD (cash on delivery) share is still over 701 TP3T.
  • Innovation Cases::
    • Daraz Pay (Ali-based) has launched a Buy Now Pay Later (BNPL) service that allows 3 interest-free instalments.
    • SBP asks e-commerce platforms to access Raast by 2025 to reduce cash dependency.

2. Cross-border B2B Payment Pain Points and Breakthrough Points

  • status quo: SMEs' foreign trade settlement mainly relies on bank letters of credit (which take 7-15 days), with handling fees as high as 3%-5%.
  • Pilot policy: SBP approves Stripe-type aggregator payment platforms to provide instant foreign exchange settlement for exporters (subject to matching customs data).

3. Agricultural financial technology

  • The SBP mandates banks to invest 10% loans in agriculture, giving rise to "digital land registry + payments" programmes. For example, UBL worked with the provincial government to develop a credit scoring model for farmers.

VI. Regulatory sandboxes and innovation experiments

  1. Progress on digital currencies

    • Wholesale CBDC: SBP has completed interbank settlement testing (based on Hyperledger Fabric).
      –Retail orientationSuspended (due to IMF concerns about runaway monetary policy).

  2. Open Banking API Framework (draft stage)
    Proposed to require top 5 commercial banks (e.g. HBL, MCB) to disclose account verification/payment interfaces - currently only Alipay+ has access to some of these banks.

VII. Practical Guide for Chinese Enterprises on the Ground
1.Licence Application Route Options
| Business Type | Applicable Licence | Approval Time | Capital Requirement |
|——————-|————————–|———-|—————-|
|Electronic Wallet Issue |EMI Licence |9-12 Months |Rs. 200 Million |
|Cross Border Remittance |Forex AD License |6 months + |$500,000 Margin|

Note: It is recommended to prioritise shortening the cycle by acquiring local licensees (e.g. the case of OPPO's acquisition of part of Finja).

2.Localisation Requirements

  • data storage:: The transaction log is required to be maintained in Ba for a minimum of five years.
  • language adaptation:The UI must support Urdu Right-to-Type (RTL).
  • Handling fee cap:: P2P transfers may not exceed 0.1% (cf. Raast standard).

VIII. Risk warning
1.Examples of political risk:: 2023 Interim government freezes all international credit card purchases online (for 72 days), leading to mass complaints from PayPal merchants.
Solution: Maintain 50% or more liquidity in local currency account (guaranteed by MPSA clause).

2.technology gap:: The 75% POS still only supports magnetic stripe cards and requires pre-installation of dual-mode devices (QR+IC chips).

For further information on a specific area (e.g. how to bypass foreign exchange controls for cross-border e-commerce collections in China and Pakistan), a more targeted deconstruction can be provided.